Pension board lowers rate for pension program

San Diego 
To shore up an ailing retirement system, the city pension board voted Friday to reduce the rate of return guaranteed to employees and retirees in a program that's popular with workers.

The board of the San Diego City Employees Retirement System voted to lower the rate of return for employees in the Deferred Retirement Option Plan, or DROP, to 3.54 percent from 7.75 percent beginning July 1.

The program allows workers to collect pension money for five years before they retire in an account with guaranteed interest, and the reduction affects the money before the employee retires.

The board also voted to lower the guaranteed rate for annuities into which the special funds go after the employees retire. That reduction was somewhat less, to 5 percent from 7.75 percent, also taking effect July 1.

Leaders of city unions warned that the reduction could force a rush of seasoned employees into retirement so they can lock in the 7.75 percent rate, which they will only receive if they retire before July 1.

The San Diego Police Department is already operating about 150 officers below optimal staffing levels and will be further damaged because of the rate reductions, said Brian Marvel, president of the San Diego Police Officers Association.

“I think you'll see anywhere from 40 to 70 people leaving in the next six months,” Marvel said. “I think you'll see a dramatic impact on staffing, and we're already stretched pretty far right now.”

The DROP program was an incentive for experienced workers to stay on the job, said Joan Raymond, head of the union representing the city's blue-collar workers.

“So what you're going to see is people leaving,” Raymond said. “And that's going to impact the health and safety of our citizens.”

Said John Thomson, a Fire Department battalion chief, “We're going to lose people, and it's going to create issues for the city. Unfortunately, they're going to lose police officers and firefighters.”

Pension board officials said they are simply trying to make the DROP program operate at no cost to taxpayers – something required by the city's Municipal Code. With a guaranteed interest rate of 7.75 percent, the program had been losing money.

That is particularly important to the retirement system, which faces a $2 billion deficit.

The actuary for the retirement board estimates that the reduction in the interest rate the DROP account for workers still on the job could mean a savings of more than $24 million over time. For the slicing of the interest rate in the DROP account for retirees receiving annuities, the savings could be more than $40 million.

Still, there was vigorous debate among board members about the fairness of the cuts to the DROP program, which has about 1,770 enrollees.

Board member Franklin Lamberth, a city sanitation driver, urged colleagues to leave the interest rate at 7.75 percent. He said that was the fair level for city workers who enrolled in the program.

“It's a straight slash across the board,” Lamberth said. “I don't want to see it slashed across the board.”